Lakeland Industries' Q3 2026: Contradictions Emerge on NFPA Certification Delays, Tariff Strategies, and Inventory Management

Date of Call: December 9, 2025

Financials Results

• Revenue: $47.6M, up 4% year-over-year (Q3 FY2026 vs Q3 FY2025)
• EPS: -$1.64 per basic and diluted share (net loss $16.0M) vs $0.01 per share in Q3 FY2025
• Gross Margin: Adjusted gross margin 31.3%, down from 41.7% year-over-year; consolidated gross margin 29.7% vs 40.6% prior year
• Operating Margin: Adjusted EBITDA, excluding FX margin 5.5%, down 988 basis points year-over-year and down 918 basis points sequentially

Guidance:

• Withdrawing formal guidance; focusing on disciplined operating model, measurable execution, cash generation and transparency.
• Expect high single-digit revenue growth across global operations over the next three quarters.
• Target 10–12% adjusted EBITDA margins over the next three quarters and 15–17% adjusted EBITDA margins over the next three years.
• Suspending the quarterly cash dividend to conserve cash for growth and acquisitions.
• FY'26 capex ~ $1.2M; SAP North America rollout targeted for June–July 2026.

Business Commentary:

* Revenue Performance and Margin Decline: - Lakeland Industries reported net sales of $47.6 million for Q3 2026, representing a 4% year-over-year increase, with fire services products achieving a 31% increase, while adjusted EBITDA excluding FX decreased to $200,000 from $4.7 million in the prior year. - The decline in adjusted EBITDA was primarily due to lower revenue and gross margin, exacerbated by increased material and freight costs, tariffs, and revenue shortfalls in Latin America and the U.S.

• Strategic Acquisitions and Market Growth:
• The acquisition of California PPE and Arizona PPE expanded Lakeland's service segment in the U.S., contributing approximately $5 million in annual recurring revenue.

• These acquisitions aimed to leverage the strengths of Lakeland's and acquirees' service offerings to develop a strong North American platform, contributing to the global fire services market expansion.

• Tender Cycle and Market Outlook:

• Lakeland has approximately $178 million in global tender opportunities, including $38 million in high-probability opportunities expected to close in fiscal '27.

• Delays in tender conversions were attributed to certification cycles and administrative bottlenecks, but the company is optimistic about increased tender activity in fiscal '27, driven by expected NFPA certifications.

• Operational Challenges and Cost Management:

• The company faced challenges in revenue forecasting and experienced a gap between internal expectations and actual results, leading to a withdrawal of formal guidance.
• Lakeland is focused on improving forecast accuracy, optimizing inventory levels, and implementing cost reduction initiatives to enhance operational visibility and cash generation.

Sentiment Analysis:

Overall Tone: Neutral

• Management called the quarter 'unacceptable' and withdrew formal guidance, citing missed targets and significant margin pressure, but emphasized a robust $178M tender pipeline and expectations that certifications and tender wins will drive recovery in FY27.

Q&A:

• Question from Gerard Sweeney (ROTH Capital Partners): I wanted to talk about the fire service tenders, $38 million high probability. What makes you think they're high probability? And then the follow-on of that was would be that $178 million total, is there an opportunity for that to expand further, especially with some of the NFPA determinations coming out in the next couple -- hopefully, in the next month or 2?
  Response: High‑probability categorization is based on incumbency, competitor weakness, multi‑brand bidding and being written into specs; certifications expected by March 2026 and much of the $178M pipeline should convert across FY'27.

• Question from Gerard Sweeney (ROTH Capital Partners): On the margin front, it sounded as though you could recover those costs to just higher absorption or higher production levels and absorbing some of the overhead? Did I hear that correctly? Or could you walk through that?
  Response: Yes — margin recovery depends on restored volume and mix (more custom turnout gear vs commodity items) and higher absorption of fixed costs as tenders convert.

• Question from Gerard Sweeney (ROTH Capital Partners): One more question. How important is getting the ERP system up and running to really give you visibility on those mechanics?
  Response: Critical — North America SAP rollout targeted June–July 2026 to centralize visibility; other regions’ ERP rollouts will follow.

• Question from Mark Smith (Lake Street Capital Markets): I just wanted to ask about kind of certification delays. Can you give us an update on anything that changed on that since the end of the quarter?
  Response: Delays are due to a consolidated set of standards creating a backlog at third‑party certification agencies; company does not expect further delay beyond the March 2026 timing.

• Question from Mark Smith (Lake Street Capital Markets): If you think about mitigating and improving gross profit margin, can you just talk about headwinds and what you expect to normalize?
  Response: Actions include SKU rationalization, supplier programs, targeted inventory reductions (~$6M target), and bringing third‑party manufactured products into our own factories to improve margins.

• Question from Mark Smith (Lake Street Capital Markets): Thinking about tariffs, pipeline cost, raw material cost, can you just talk about pricing opportunities?
  Response: We are implementing selective, strategic price increases in fire and industrial segments (not across‑the‑board) and running programs to move inventory into customers’ Jan budgets.

• Question from Michael Shlisky (D.A. Davidson & Co.): As far as I could tell, NFPA is a standard writing body and now their action or lack of action is causing your business to struggle — do you know what they're doing to increase approval throughput?
  Response: NFPA writes standards; certification is performed by third‑party agencies (e.g., UL) which currently have a backlog and limited resources — throughput is constrained and outside our control.

• Question from Michael Shlisky (D.A. Davidson & Co.): Have you heard anything from those folks about how fast they're going to increase the throughput of approvals?
  Response: Agencies are working within existing resources; alternatives exist but exhibit similar capacity constraints, so no immediate step‑change in throughput is expected.

• Question from Michael Shlisky (D.A. Davidson & Co.): Who's paying the bill for the UL and other agency testing?
  Response: Each manufacturer pays for its own certification testing.

• Question from Michael Shlisky (D.A. Davidson & Co.): On the Hong Kong deal and Malaysia, do you think those will provide an IS margin benefit and should we expect good margins starting in fiscal '27 from those contracts?
  Response: Yes — Malaysia and Hong Kong contracts are expected to be high‑margin; Hong Kong should deliver a noticeable revenue/margin bump in Q1 FY27.

• Question from Michael Shlisky (D.A. Davidson & Co.): Given competitor struggles, are you concerned about the pricing environment for bids today?
  Response: Standards raise product complexity and input costs, which should elevate market price points; competitor operational struggles may affect delivery but standards-driven spec changes support healthier pricing over time.

Contradiction Point 1

NFPA Certification Impact on Business Activity and Throughput

It involves the role of NFPA in product certification and the expected impact on business activity, which affects revenue and operational expectations.

How is NFPA affecting business activity, and what steps are being taken to boost approval throughput? - Gerard Sweeney (ROTH Capital Partners, LLC)

2026Q3: NFPA is not involved in certification. We pay for certification. - James Jenkins(CEO)

Who is paying for product certification, NFPA or Lakeland? - Michael Shlisky (D.A. Davidson & Co.)

2026Q1: The NFPA is responsible for writing the standards, not certifying the products. And certification is typically handled through third-party agencies. - Barry Phillips(CRO - Fire)

Contradiction Point 2

NFPA Impact and Certification Delays

It involves the impact of NFPA on product availability and revenue projections, which directly affects the company's financial performance and investor expectations.

How is NFPA impacting business activity, and what are they doing to increase approval throughput? - Michael Shlisky (D.A. Davidson & Co.)

2026Q3: NFPA is responsible for writing standards, not certifying products. The certification process involves manufacturing to meet new standards and third-party agencies for approval. - Barry Phillips(CRO - Fire)

How does the new NFPA standard impact your business, particularly regarding certifications or product safety features? - Michael Shlisky (D.A. Davidson & Co.)

2026Q2: NFPA is responsible for writing standards, not certifying products. The certification process involves manufacturing to meet new standards and third-party agencies for approval. - James Jenkins(CEO)

Contradiction Point 3

Tariff Strategies and Their Impact on Gross Profit Margin

It involves the company's tariff strategies and their expected impact on gross profit margins, which are critical financial indicators for investors.

Will gross profit margin improve? - Mark Smith (Lake Street Capital Markets, LLC)

2026Q3: We have been managing tariffs for a long time. There are tariffs that affect almost all products we sell globally, and we continue to manage tariffs by diversifying our sourcing and our shipping. - James Jenkins(CEO)

Can you detail the organic gross margin headwinds and how you’re addressing them? - Mark Smith (Lake Street Capital Markets)

2026Q1: We have a lot of items that are coming out of Vietnam that are affected by the tariffs. So we've been working on alternative sourcing for production of items from Vietnam. So we've been pretty proactive. - Roger Shannon(CFO)

Contradiction Point 4

NFPA Timeline and Certification Delays

It involves the timeline and expectations regarding NFPA's impact on the company's product certification and related revenue, which can significantly affect business operations and financial performance.

What's the update on certification delays and any expected changes? - Mark Smith (Lake Street Capital Markets, LLC)

2026Q3: Expectations are that the certification will be completed by March of 2026, aligning with the NFPA's timeline. - James Jenkins(CEO), Barry Phillips(CRO)

What are the growth initiatives and M&A plans for the year, given the focus on services and recurring revenue? - Matthew Galinko (Maxim Group)

2025Q4: NFPA is responsible for writing standards, not certifying products. The certification process involves manufacturing to meet new standards and third-party agencies for approval. - Barry Phillips(CRO)

Contradiction Point 5

Inventory Management and Tariff Impact

It relates to inventory management strategies and the impact of tariffs on gross margins, which are crucial for financial planning and investor expectations.

How important is implementing the ERP system for global visibility? - Gerard Sweeney (ROTH Capital Partners, LLC)

2026Q3: To manage the inventory, we've prioritized ERP systems in North America, where the majority of critical processes occur. This will improve visibility and streamline operations. There is a plan to integrate North America first, then other regions like Vietnam. - James Jenkins(CEO)

How comfortable are you with current inventory levels, and are stock levels set aside for tariffs? - Mark Smith (Lake Street Capital Markets, LLC)

2026Q2: Inventory levels are high due to pre-stocking for tariffs. There's a focus on optimizing inventory, especially in high-performance and turnaround businesses. - James Jenkins(CEO)